Mike Tipping: Why aren’t we doing anything to stop the New Markets scam?

It’s perhaps the largest scam ever perpetrated against the people of Maine. A gang of out-of-state financiers helped to pass in the Legislature and then ruthlessly exploited a program meant to drive investment to economically struggling parts of the state.

Instead of new money flowing into real investments in poor and rural areas, state funds flowed straight into their pockets. In total, they’re set to make off with more than $35 million.

The most well-known aspect of the scam involved the Great Northern Paper mill in East Millinocket. Its owners, a New Hampshire firm called Cate Street, orchestrated a scheme that saw so-called investors walk away with $16 million in refundable tax credits even as the mill was shuttered, its employees were laid off and its equipment was auctioned for scrap.

Some sensed that there was something fishy going on with the mill.

Reporter Lance Tapley wrote a scathing series in the Portland Phoenix on the outrageous level of government subsidies funding Cate Street’s operation.

Independent gubernatorial candidate Eliot Cutler described the company’s owners as “snake oil salesmen” during his campaign.

Last year, I wrote a column criticizing Gov. LePage for blatantly shilling for Cate Street while taking their money for his re-election campaign.

None of us knew the full extent of the corruption of the program, however, and we still wouldn’t, if it weren’t for the work of Maine Sunday Telegram reporter Whit Richardson.

In a recent series called “Payday at the mill,” he untangled their deliberately complicated web of shady ownership transfers, false investments and one-day loans that have been used the exploit the New Markets program in East Millinocket and at other sites throughout the state. He made clear exactly how badly Mainers have been cheated.

The scale of the scam is staggering.

The five projects described by Richardson that featured sham transactions have cost around $35.5 million in state tax credits, which these firms will continue to receive over the next few years.

To put that in perspective, we could instead use that money to build the best school in the state, or pay the salaries of 70 teachers for 10 years.

We could fund General Assistance for the estimated 1,000 families of asylum seekers (currently threatened in the budget negotiations in Augusta) 35 times over.

From 2011 to 2013, the amount of successfully prosecuted public assistance fraud in Maine (the bête noire of the LePage administration and Republicans in the Legislature) averaged $162,767 a year. At that rate, the New Markets scam will cost us the equivalent of more than 200 years of welfare abuse.

There has not yet been public or government reaction commensurate with this level of fraud.

Even now that Richardson’s exposés have run in the newspaper, Maine is still on track to continue giving up the money.

There’s a bill in the Legislature to reform the program and recoup funds lost through the sham transactions, but its passage is uncertain, and every Republican on the Labor, Commerce and Economic Development Committee voted against the proposal.

Gov. LePage has defended the program and has said that, when it comes to Cate Street, he would make the same deal all over again.

There should be hearings held on how this was allowed to happen. There should be news conferences with public officials demanding answers and vowing to get our money back. Instead, there’s been some muted protest in the Legislature and a few opinion columns like this one saying it isn’t right.

Why hasn’t this been a bigger, more public deal? Two reasons:

• First, the program and the schemes that exploited it are complex. They’re a byzantine mess of transactions and loans meant to wring every dollar out of the program while remaining impenetrable to the public and even the legislators who approved the program and the Finance Authority board members who authorized the deals.

They’re difficult to understand, even after they have been thoroughly reported, so many people don’t even try.

• Second, those who created the New Markets program and those who have profited from it represent powerful constituencies. They have influential lobbyists and have spent tens of thousands on campaign contributions.

They also represent a powerful messaging frame: the idea of attracting investment and creating jobs, something no politician wants to be seen as being against.

Fighting back against these con artists will require real leadership from public officials who aren’t afraid to describe the problem clearly and demand a real solution. Maine people deserve a government that works on their behalf, and they deserve their money back.

Mike Tipping is a political junkie who works for the Maine People’s Alliance. He can be contacted at:

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